With the China-led Asian Infrastructure Investment Bank (AIIB) operating for over three months, Bangladesh is looking to the new lending institution for funding some of its power projects.
The government has asked its top officials to approach the AIIB for loans for some of its power projects, which is much needed for Bangladesh as it plans to supply uninterrupted electricity to residences by 2021, sources said.
The Ministry of Finance has accordingly asked the Economic Relations Division of the Ministry of Planning and Power Division to prepare proposals to seek loans from the new lender.
Among the other existing lenders like AIIB, Bangladesh receives the largest amounts of loans from the US-led World Bank and Japan-led Asian Development Bank.
The move comes after the parliament in February ratified the AIIB Bill 2016, paving the way for the bank membership.
“The project evaluation committee has recently asked the Power Division to provide details about the power project proposals expected to be funded by the AIIB,” said a source at the ERD.
The Power Division is likely to seek a total of Tk1,289 crore for its three power projects from the AIIB, he said.
The Rural Electrification Board under the Power Division proposed to borrow AIIB fund of Tk772 crore out of the total project cost of Tk1,232 crore to add 25 lakh new subscribers of the country.
The Dhaka Electric Supply Company Ltd (DESCO) proposed to convert the overhead power transmission lines to underground lines by taking AIIB credit of nearly Tk359 crore out of the total project cost of Tk570 crore and to upgrade the existing distribution system at Uttara and Bashundhara by taking AIIB loan of Tk158 crore out of the total cost of Tk251 crore for the project.
At present, the government is assessing the economic and financial returns from the AIIB loan as it is costlier than the loans from other multilateral lenders like WB and ADB, officials said.
Interest rate of the AIIB loans might be less than 2% with a grace period of 8-9 years, quite comparable to credit from World Bank and International Monetary Fund, according to Finance Minister AMA Muhith.
Currently, the World Bank lends for the development projects at 0.75% interest rate with 50 years of repayment period, including a 10-year grace period.
The ADB lends at less than 2% rate with 22-30 years of repayment period with 5-10 years of grace period.
Bangladesh is going to be a founding member of the AIIB, which has its headquarters in Beijing and opened for business on January 16 with a capital of $100 billion.
Bangladesh has already applied for AIIB membership after parliament ratification. In January, the country failed to get membership in absence of the parliament ratification.